“This is a case about fraud and deceit by one of the world’s largest banks.”

Schneiderman said in a statement Wednesday: “The facts alleged in our complaint show that Barclays demonstrated a disturbing disregard for its investors in a systematic pattern of fraud and deceit.”

A spokesman for Barclays said in a statement: "“We take these allegations very seriously. Barclays has been cooperating with the New York Attorney General and the SEC and has been examining this matter internally. The integrity of the markets is a top priority of Barclays.”

Financial News answers five questions about the issue:

What does the lawsuit allege?

The suit claims that Barclays made false statements to clients and investors about the way its dark pool - Barclays LX - was operated, specifically that it did not have in place the safeguards it said it did to protect against “predatory” high frequency traders.

The suit said: “Barclays has actively sought to attract such traders to its dark pool, and it has given them advantages over others trading in the pool.”

According to the suit, Barclays did this as part of a business strategy to dramatically increase the market share of its dark pool.

The attorney general claims Barclays “falsified market material” showing the type of trading in its dark pool. It allegedly excluded, for example, the name of a high frequency trading firm that was its largest participant at the time and a firm that it knew was predatory.

The suit references an internal email discussing the changes to market material in which a vice president wrote: “I had always liked the idea that we were being transparent, but happy to take liberties if we can all agree.”

The suit added that Barclays gave predatory traders detailed information about the way the dark pool was run to allow them to take advantage of other clients. It worked to attract those traders to make sure that there was enough liquidity to fill client orders, the suit says.

Finally, the suit alleged that Barclays misrepresented the way it routed orders in Barclays LX, sending a “disproportionately high percentage” to its own dark pool.

What did Barclays have to gain?

The lawsuit references internal bank documents that value the growth opportunity from increased order flow in Barclays LX at $37 million to $50 million per year.

It referenced a push by the bank to grow the dark pool - started in 2011 - that included a note to employees about sending more order flow to the venue. This would allow the bank to earn more fees and avoid paying commissions for trades on other venues.

The suit adds: “Besides the profit motive inherent in growing its dark pool, growing Barclays’ dark pool to be the largest in the United States was something of a prestige project. Barclays’ dark pool was referred to internally as ‘The Franchise.’”

How big is Barclays’ dark pool, anyway?

The Financial Industry Regulatory Authority in the US recently passed new rules requiring dark pools to disclose the volumes they trade, which shed light on how large these venues actually are. They accounted for 15.4% of total US equity trading in the week beginning May 12, according to Credit Suisse research published earlier this month.

Credit Suisse’s Crossfinder is the largest in terms of shares traded during the week starting May 12, with Barclays’ LX dark pool ranked second and UBS ATS third.

Data is aggregated weekly by Finra, which is an independent securities regulator, and posted after a several-week lag.

Why is this suit important now?

The lawsuit comes as regulators on both sides of the Atlantic probe the practice of high frequency trading and the venues in which they operate. Dark pools have been the subject of heated debate following the publication of Michael Lewis’s “Flash Boys”, which chronicles the development of IEX, an exchange that aims to eliminate predatory trading.

The attorney general’s case also ties into a broader effort by his office called Insider Trading 2.0 that started a year ago, probing early access to information in electronic markets.

In Europe, the second version of the Markets in Financial Instruments Directive includes tougher rules for brokers that operate their own internal dark pools. This will include making the venues adhere to the same rules as other types of public market, which is intended to improve transparency and reduce the discretion brokers have when matching orders.

What are the misrepresentations made by Barclays about the nature of trading in its dark pool?

According to the compliant, Barclays has used a tool known as Liquidity Profiling since 2011 to gauge the nature of trading in LX.

A disclosure from Barclays regarding LX dated February 2013, said its liquidity profiling tool measures the order characteristics and post-trade outcomes of users to “detect the presence of aggressive or predatory trading”.

In the disclosure, the bank says it uses surveillance protocols including short-term alpha – price movements that occur a second after a trade is completed – order size, ratio of providing versus taking liquidity, and difference of buying versus selling a stock, as part of these measures.

LX users are then segmented based on these characteristics ranging from passive, neutral and aggressive participants, which Barclays calls an ‘entitlement framework’. Those using LX can then choose which types of firms they trade with.

According to the suit, Barclays relied heavily on this service “to reassure investors and clients that Barclays keeps them safe from aggressive, predatory high frequency traders.”

However, in the complaint, Barclays is accused of making a “series of false representations to clients about its Liquidity Profiling service”, which included a failure to regularly profile traders and granting liberal overrides to HFT firms and to Barclays’ own internal trading desks, which were also employing its own aggressive trading strategies.

Assigning profiles to users is a common aspect of many broker-run dark pools and is used as a way of putting clients at ease. Similar functionality is employed by Credit Suisse and Societe Generale.